Discussion Paper No. 687

ATTITUDES TOWARD THE INCOME GAP:
JAPAN-U.S. COMPARISON

Fumio Ohtake
andShinji Takenaka

April 2007

The Institute of Social and Economic Research
Osaka University
6-1 Mihogaoka, Ibaraki, Osaka 567-0047, Japan

Attitudes toward the Income Gap: Japan-U.S. Comparison *Fumio Ohtake, Osaka University †Shinji Takenaka, Osaka University ‡Abstract
Employing the Japan-U.S. international survey, this study analyzed the cause of rising
perception of the widening income gap in Japan. Between these two countries, their distinct
value judgments on the substance of gap influence their recognition. Japanese have negative
perception of the income gap caused by talent, academic background or luck; it seems relatively
weak in the U.S. A large portion of Japanese also think one’s income is recently decided by talent,
academic background or luck though it should not be. Such disagreement between the desirable
and recognized determinants of income is thought to raise their perception of the gap.

1. Introduction
From the year 2005 through 2006, expansion of the income gap received large
public attention in Japan. Some of the Japanese best sellers in 2005 addressed aclassed society. The issue of gap in society was also debated in the Diet in 2006. The
debates stemmed from not only political backgrounds, including the argument about aseries of recent structural reforms or the upcoming presidential election of a rulingparty, but also the rising perception of economic inequality among Japanese. In fact,according to the results of National Survey on Lifestyle Preferences (conducted by the
Cabinet Office, Government of Japan) since the 1980’s, an increasing percentage of
people thought that their preference for low inequality of income and property has
been almost unsatisfied. The percentage reached a quarter of the whole in the 2005
survey. Parallel to the increase in such public concern, the income gap in Japan has
actually continued to rise since the end of the 1970’s, as shown in Figure 1.
Why has the income gap in Japan continued to expand? Discussing the issue* The authors are indebted to Kiyoshi Ota for his comments on an earlier version of this paper.
†
Institute of Social and Economic Research‡
Graduate School of Economics

1thoroughly, Ohtake (2005) states that a large part of the continuing income gap
expansion can be explained by the ageing of population. The gap within each age
group, except recent twenties, has remained unchanged in Japan. Income inequality,
on the whole, has nevertheless been widened by the ageing of the Japanese population.
The income gap has been greater within the older group in Japan. Such a lifelong gap
starts widening around the age of forty, when the speed of promotion begins to differ
among employees. Japanese ageing has thus enlarged the groups of larger income gap
and increased inequality. On the one hand, the income gap among the younger
generation rose from the end of the 1990’s through the beginning of the 2000’s. This
recent trend was caused by the rapid increase of freelancers and the unemployed intheir seriously bleak employment situation. Another characteristic observed since thelate 1990’s is the decrease in wages earned by the low-wage group of male workers.
As explained above, the widening gap in the flow of income can be explainedby the population’s ageing. The gap in lifetime income could, however, have widened
even if the within-group gap had hardly changed. Less frequent movements acrossincome classes would result in a wider gap in lifetime income, even if the gap were
unchanged within each age group. The widening of the gap between assets would also
yield the same effect. In fact, the gap in consumption, which is a proxy of lifetime
income inequality, tends to widen among the age groups under fifties (Ohtake, 2005).
Although the Japanese long-term trend of the income gap stems from theageing of the population, the upward tendency of the income gap has never been aunique observation in Japan. As is well known, the U.S. income gap has also shown
its tendency to expand (Figure 1). In fact, the cause of such expansion has been one of
the big issues among economists since the 1980’s 1 . Among the studies in the UnitedStates, many of them have addressed the skill-biased technical change (SBTC) and theglobalization of economy as the potential causes of the widening income gap. Thesestudies concluded the following two reasons are responsible for the expansion of theincome gap in the 1980’s. First, the technological progress had been biased in favor of
the labor demand for highly educated or high-skilled workers. Second, the1

For instance, see Katz and Autor (1999).

2

globalization of economy had decreased the labor demand for lower-educated workers
in developed countries.
The U.S. upward trend after the 1990’s is, by comparison, recently
characterized by the rapid income growth of high-income earners and highly educatedworkers and by the within-group income dispersion among the highly educated group 2 .
According to Piketty and Saez (2006), the income share of the top 0.1% in the U.S.
used to be around two percent from the 1960’s to 1970’s; on the other hand, the shareexceeded seven percent in 2000. The growth of their income share is, in addition,accounted for by the increase in salaries instead of capital income. Such increase in
the income concentration is commonly observed in the English-speaking countries,
including the United Kingdom and Canada. In contrast, the income share ofhigh-income earners in Japan and France has been stable at around two percent since
the Second World War. The trend is unchanged since 2000 3 . Decomposing the U.S.
recent wage inequality, Lemieux (2006) also shows that the wage for the highly
educated group has increased and their within-group wage dispersion has widened
during the same period of time. Besides, Autor et al. (2006) suggest that thecomputerization of work has brought about the polarization of wage distribution in
the U.S.
Piketty and Saez (2006) and Autor et al. (2006) furthermore provide thefollowing reasons for the recent increase in income inequality in the U.S. First, theroutine tasks of white-collar workers have been replaced by computers; consequently,
jobs have been polarized into manual tasks and high-skilled work beyond the reach ofcomputerization. Second, the economic globalization initiated the unskilledlabor-intensive exports of the developing countries to the developed ones, while
computerization has allowed a part of white-collar jobs to be transferred fromdeveloped countries to developing ones. Third, because of such technologicalprogress, the required skills of executives have become more general, industry-wide2
3

See Autor et al. (2006), Lemieux (2006) and Piketty and Saez (2006).
The research on the Japanese trend is based on Moriguchi and Saez (2006). Their study
analyzed the data up to the year 2002; thus, the top-income share in Japan did not increased
until then at least.

3

rather than firm-specific; therefore, the enlarged labor market of executives has
produced a group of superstars, similar to the ones of singers and professional athletes,
among these business elite.
The widening income gap in the U.S. has never been a political issue, although
the gap has shown rapid expansion. The Japanese income gap is, by contrast, now thesubject of political debate, whereas the income-gap expansion, excluding the partdriven by ageing of the population, is small-scale 4 . Why do attitudes differ between
Japan and the U.S.?
Employing the Japan-U.S. comparative survey data of Osaka University 21stCentury Center of Excellence Program (February 2006), this research will examine
the issue of income inequality as follows. First, this article will describe thedifference in the recognition of the income gap and the different attitudes towardredistributive policies between Japan and the United States. Second, it will examine
whether risk aversion parameter and altruism, supposed to be critical from an
economic viewpoint, can actually explain attitudes toward the income gap. Third, it
will clarify how the values in determinants of the income gap differ between the twocountries. Forth, it will also examine whether those beliefs relate to the recognition ofa widening gap in income.

2. The Recognition of the Income Gap: Japan-U.S. Comparison
Data
This paper’s analysis will be based on the data from two questionnaire
surveys: (1) Osaka University 21st Century Center of Excellence Panel Survey[conducted in Japan] (OPSJ) and (2) Osaka University 21st Century Center of
Excellence Panel Survey [conducted in the USA] (OPSUS). Their basic information is
described below.
Both surveys contain hypothetical questions to measure a respondent’s risk
aversion and altruistic attitude, as well as the individual attributes including
4

The Economist issued on June 16, 2006 also featured the low public interest in the income-gap
expansion in the U.S. and the increasing attention to the same issue in Japan.

4educational attainment, age and income. The principal questions used for this research
are reproduced in Appendix 1.
OPSJ is a panel study begun in February 2004 as part of the Osaka University
21st Century Center of Excellence Program. The survey has been conducted annually
since 2004 using a random sample drawn from 6,000 individuals by a placement(self-administered) method. It had 4,224 and 2,987 respondents in 2004 and 2005,
respectively. Excluding 108 individuals lost from the last 2,987 respondents, 2,000
new random-sampled individuals were added to the survey sample in 2006. The 2006
survey was then distributed to 4,879 individuals and the number of respondents was
3,763. Its response rate was 77.1%, while the figure equals 47.1% for the total 8,000
individuals included in any samples. This research will use the survey questions about
the recognition of the income gap, which were included only in the 2006 survey.
OPSUS is also administered as part of the Osaka University 21st Century
Center of Excellence Program. This mail survey was conducted with 12,338
individuals in January and February 2005. The number of respondents was 4,979.
Another survey was mailed to respondents of the 2005, with 3,120 responses being
obtained in January and February 2006. The response rate in 2006 is equal to 25.3%
for all 12,338 individuals in either sample or both. All the questions were the same as
those in each OPSJ survey.

The Japan-U.S. difference in the recognition of the income gap
In each country, the survey inquires about the respondents’ thought on changes
in the following domestic gaps for the last and the next five years: (1) the gap between
income or earnings, (2) the one between assets such as savings, stocks, land andhousing, (3) the income gap due to differences between families which one grew up in,and (4) the gap between spending standards (Question 44 and Question 45). The
questionnaire also asks about whether he or she considers the current expansion of theincome gap as problematic (Question 46) and about the enforcement of redistributive
policies (Question 47).
Using the responses to these questions, the Japan-U.S. difference in the5recognition of the income gap and in their attitudes toward to it will be examined.
Figure 2 shows the percentage of those who recognize or expect the expansion of gaps
between income or earnings, assets, and spending in the last or next five years. In the
U.S., the figures are between 50 and 60 percent for the three kinds of gaps. The gaps
of income and assets in Japan are, in contrast, recognized by 68 and 60 percent of the
respondents respectively. It is also characteristic of the Japanese responses that thepercentage is larger for those expecting the future expansion of gaps than for thepeople having recognition of such expansion in the last five years.
The proportion of those who agree with the enforcement of income
redistribution from the rich to the poor (using the taxation system and social security
policy) are 51.7% and 45.3% in Japan and the U.S. respectively. The Japanesepercentage is significantly greater than its U.S. counterpart (Figure 3). The larger
percentage of the support for redistribution in Japan cannot be attributed to theJapanese higher portion of those considering the widening income gap as problematic.
In both Japan and the U.S., approximately 73 percent of respondents view the gaps as
problems, yielding no significant difference between the percentages statistically.
Thus, the different thoughts on the necessity of enforcing redistribution between thetwo states cannot be caused by the difference in their values viewing the income-gap
expansion, but by their contrasting recognition of the enlarging income gaps.

Thoughts on the income gap by income groups
For higher income groups, a larger share of people recognizes and expects the
expansion of the income gap (Figure 4, 5). The positions of income groups arranged
in order of the income-gap recognition are, interestingly, different to the one in orderof the share of individuals viewing the gap as problematic. In both Japan and the U.S.,
the portion of people considering the income-gap expansion as unproblematic isgreater for higher income groups. In addition, the share of those who support theenforcement of redistribution policy is higher for lower income groups.

Thoughts on the income gap by age groups
6

Observing the recognition of the income gap by each age group of Japan, therate of recognition among the forties and fifties is higher than the others’ (Figure 6).
In addition, the age groups from forties to sixties bear the larger shares of thoseviewing the gap as problematic. In contrast, the portion of individuals viewing theincome gap as problematic is the lowest in the group in their 20s than others, while
the within-group gap in income and earnings among the twenties has been observed
widening in actual data. The support for redistributive policies is relatively high forthe groups aged fifty or over in Japan.
In the United States, the rate of income-gap recognition is comparatively highin the age groups in their 20s and 50s, while the share of those expecting the gap towiden is higher in the age groups less than 60 (Figure 7). On the other hand, the shareof people viewing the income gap as problematic is larger in the groups aged fifty orolder. The U.S. share of those supporting the enforcement of redistributive policies ishigh among the age groups in their 20s.

Thoughts on the income gap by genders
Comparing the share of those recognizing the widening income gap and that ofthose expecting a future expansion of the gap, men bear larger percentages for those
two points than women in Japan and the U.S (Figure 8, 9). On the one hand, theportion of females viewing the income gap as problematic is higher than males. On
the other hand, the share of males supporting the enforcement of income
redistribution is larger than females in Japan, probably because a smaller percentageof women recognize the widening income gap than men.

3. Determinants of Thoughts on the Income Gap: Regression Analyses
This section will relate the people’s recognition of a widening income gap andtheir views on it to their individual attributes, basing the relations on the results of thefollowing regression analyses. Employing Japanese data in 2002, Tomioka and Ohtake(2005) found that those who recognize the expansion of the income gap werecomposed of females, middle aged, or highly educated people and those expecting the7unemployment of their family members or themselves. The enforcement ofredistributive policies was supported by those aged fifty or older, expecting theirunemployment, being risk averse or categorized as low-income individuals. Do wefind the same result from the Japan-U.S. international survey in 2006 for thiscomparative study?

Determinants of support for redistribution
The economic determinants of support for redistributive policies will bebriefly laid out 5 . Within a static framework, a lower-income class, supposed to benefit
more, is expected to agree with the redistribution, whereas a higher-income class,incurring a heavier burden, is predicted to oppose such policies. The preceding studies
have actually proved the negative correlation between income level and the support
for redistribution.
However, if there exists mobility across income classes in the future, current
income is not the sole determinant of support for redistribution today. Benabou andOk (2001) theoretically pointed out the possibility that low-income people,
considering their potential of becoming rich, do not support redistribution in a society
with high mobility across income classes. They call that hypothesis the “Prospect ofUpward Mobility” (POUM) Hypothesis. The high-income class may, on the other
hand, support redistributive policies. Such attitudes conform to economic rationality,
if the current rich predict the possibility of decline in their future income.
The empirical studies on the above issue include Alesina and La Ferrara(2005), which constructed an index of income mobility using the Panel Study ofIncome Dynamics (PSID) and found a negative correlation between the mobility andthe individual support for redistribution. Using a data set from Russia, Ravallion and
Lokshin (2000) argue that those expecting a decline in their welfare tend to support
the equalization of individual income levels. They said that such tendency applies
even to the current high-income group. Ohtake and Tomioka (2004), using Japanesedata, showed that the supporters of redistribution in Japan comprise those expecting a
5

See Ohtake (2005) or Ohtake and Tomioka (2004) for detailed discussion.

8

decrease in their income through unemployment and those having the experience of adecline in their consumption level.
If the POUM hypothesis is correct and people expect their mobility acrossincome classes, present low-income earners will not necessarily support theredistribution. If the prospect of moving up the income ladder decreases beyond acertain level of age, holding others constant, the aging should make individuals
become more inclined to support the redistribution. Conforming to this hypothesis,
the result of Ohtake and Tomioka (2004) indicated that older age groups are more
likely to support redistribution in Japan. Alesina and La Ferrara (2005), on the other
hand, found that aging led people to be more reluctant to support redistribution in theU.S.
The important determinants of support for redistribution contain not only the
economic environment like income classes and the mobility across those classes but
also the individual preferences including attitudes toward risk and altruism. Risk
averse individuals are, for instance, thought to be likely to support redistribution
working as a safety net. Many empirical studies have used a self-employed dummy as
an inverse proxy for risk aversion. When individual support for redistribution was adependent variable in Alesina and La Ferrara (2005), the coefficient of theself-employment dummy was estimated to be significantly negative, which means theself-employed tend to oppose redistribution. The validity of that proxy, however,remains debatable. Ohtake and Tomioka (2004), in contrast, developed an alternative:
the lowest percentage of rainfall in a weather forecast which makes respondents takeumbrellas with them when going out. Using the alternative variable, they found thatpeople became more likely to support redistributive policies, as they were more risk
averse. In addition, high-income earners, incurring net loss from such policies, arealso thought to support redistribution when they are sufficiently altruistic.

Indices of risk aversion and altruism(Risk aversion)
This article employs two distinct indices of risk aversion. Each of them is9based on the responses to a different question. One of the indices equals one minus
the lowest percentage of rainfall that makes the respondent take an umbrella with him
when going out, as used in Ohtake and Tomioka (2004). Specifically, the responses
are obtained from Question 18, asking, “When you usually go out, how high does theprobability of rain have to be before you take an umbrella?” 6 The other is theestimate of constant relative risk aversion (CRRA) parameter, derived from theresponses to a set of hypothetical questions asking about respondents’ preferable waysof receiving monthly income. See Appendix 2 for the estimation method.

(Altruism)
A dummy variable serves as the index of altruism. The variable is based on the
responses to Question 27 and 28, asking about the respondents’ will to donate to acharity giving financial help to the poor. That variable takes one if respondents
showed their will to donate non-zero amounts of their family income in either of thefollowing two hypothetical cases: (1) the donation would be handed to the poor
directly, or (2) the charity would give twice the amount of their donation to thebeneficiaries 7 .

Estimation results
The four probit models, each adopting (1) Recognition of gap expansion, (2)Expectation of gap expansion, (3) Viewing the gap as problematic, and (4) Support for6

Ohtake and Tomioka (2004), by contrast, used the question asking, “When you usually go out,
how high does the probability of rain in a weather forecast have to be before you take anumbrella?” Any index derived from that question cannot distinguish the bias caused byrespondents’ optimistic or pessimistic expectation of rain, or the effect of subjective evaluationof the forecasted probability, and the attitudes toward the objective probability of rain,
classically regarded as risk aversion. The question used in this analysis, on the other hand, canseparate the influence of such optimistic or pessimistic expectation from the risk preference.
7
The indexes of risk aversion and altruism may bear measurement errors because therespondents could have failed to answer the questions accurately. Such errors would bias thecoefficient of those indexes toward zero when they are employed as explanatory variables in an
empirical analysis. Thus, this study also conducted the estimation with the mean values ofindices measuring risk preference and altruism for the respondents of the same question in boththe 2005 and 2006 surveys. The result of analysis basically remained unchanged from thecounterpart based solely on the 2006 survey; thus, the following part of this paper will show theestimation employing only the 2006 survey.

10redistribution as their dependent variables, were estimated for explaining (1) ~ (4) byindividual attributes and the indexes of risk preference and altruism. Recognition ofgap expansion is the dummy variable, taking unity if a respondent recognizes the
expansion of a gap between income or earnings in the last five years; it otherwise
equals zero (Question 44). Expectation of gap expansion is similarly the variable toequal one if a respondent expects the income gap to expand in the next five years(Question 45). Viewing the gap as problematic is, in addition, defined as the dummy
variable to take unity if a respondent thinks the expansion of income or earnings is
problematic (Question 46); Support for redistribution is also the binary variable toequal one if respondents agree with the enforcement of redistributive policies(Question 47-1).
Each estimation employed either of the two indexes of risk preference: the one
based on probability of rain or the estimated CRRA coefficient. Concerning theresults with the former index of risk preference, the estimated marginal effects of
explanatory variables are shown in Appendix 4. Those effects are also depicted in
Figures 10 and 11 8 .

(Estimation results for Japan)
The results from Japanese data are examined as follows (Figure 10). While thevarious individual attributes are controlled, the greater portion of the 40s and 50s has
the recognition and the expectation of a widening gap between income or earnings
than that of 20s. Concerning whether they view its expansion as problematic or not,however, no significant difference in opinion was found among all the age groups.
The support for redistribution is greater in older age groups. The graduates (and those
who have a postgraduate diploma) are more likely to recognize and expect the
expansion of the income gap and are inclined to agree with redistributive policies.
8

The correlation coefficient of the CRRA parameter and the index based on the probability ofrain is 0.028 for the Japanese sample; the counterpart of the U.S. equals -0.02. Neither isstatistically significant. If there is any difference in the estimation results by the choice of risk
preference parameter, it will be noted hereafter. The correlation between the risk aversion
measured by the probability of precipitation and the altruism index is, in contrast, significantly
positive for Japan and the U.S.

11

High-income earners tend to recognize the gap expansion and are less likely to view it
as problematic than low-income individuals. The high-income groups are also lesslikely to agree with the enforcement of redistribution. Comparing the results bygender, it can be found that men are more likely to recognize the expansion of theincome gap and support the enforcement of redistribution than women. Although
women are more apt to view the gap as problematic, they are less likely to recognize
its expansion than men. These tendencies can be interpreted as the reason why
females are less inclined to support the enforcement of redistribution than males. In
addition, those who expect the unemployment of their family members or themselves
tend to recognize the gap’s expansion, view it as problematic and agree withredistribution. Moreover, the risk aversion parameter, measured by the lowest
percentage of rainfall that makes one take an umbrella, shows no significant effect inall the estimation models statistically. Though the results are omitted, the increase in
the CRRA coefficient decreases the recognition of income-gap expansion. The CRRA
estimates, however, show no significant effects on the value judgment on its
expansion and the support for redistributive policies. Furthermore, the altruistic
respondents are more likely to regard the expansion as a problem and to agree withthe enforcement of redistribution.
Among the above results, the effect of risk aversion parameter differs from thecounterpart in Tomioka and Ohtake (2005) and Ohtake and Tomioka (2004). Thatparameter has shown its positive effects on the recognition of the gap expansion,
viewing the gap as problematic and the support for redistributive policies. As noted infootnote 6, the risk aversion index employed in these previous studies could have also
absorbed the pessimistic expectation of the future. This study’s index, by contrast,
separated such pessimism from the risk preference itself. The pessimistic Japanese,rather than risk-averse ones, should thus be more likely to recognize the expansion of
the gap between income or earnings and agree with the enforcement of redistributive
policies.

(Estimation results for the U.S.)
12

Referring to Figure 11, the estimation results from the U.S. sample are next
examined and compared to their Japanese counterparts. Compared to the results forJapan, a distinction can be found in the non-existence of a large difference by age
with regard to the recognition of income-gap expansion and the value judgment on it
in the U.S. In addition, the probability of agreeing with the enforcement ofredistribution is significantly lower in the age group of the seventies and over.
Moreover, the highly educated group is more likely to recognize the expansion of theincome gap. It is consistent with the recent U.S. income-gap trend characterized withthe more rapid expansion of within-group wage inequality for the highly educatedgroup than for the others (Lemieux, 2006). On the one hand, whether they recognize
the expansion of the gap between income or earnings does not significantly differ byincome groups. On the other hand, the portion of people viewing the income gap as
problematic or supporting redistribution is lower for higher income groups. Similar to
the Japanese case, those who expect the unemployment of their family members orthemselves are more likely to recognize the expansion of the gap and view it asproblematic. Furthermore, those who experienced an increase in their consumption
expenditure are inclined to expect the future expansion of the gap, regard the gap as aproblem and agree with redistributive policies. If the increase in consumption
reflected the future income growth, the above result would disagree with the POUM
hypothesis. That result would rather show the effect of an unexpected shock toincrease consumption while the income remained constant. Unlike the result for theJapanese, more risk averse people in the U.S. are likely to support the enforcement ofredistribution. Besides, the altruistic U.S. citizens are significantly more apt torecognize the gap, view it as problematic and agree with the enforcement ofredistributive policies.
The estimation results for these two countries can be summarized as follows.
First, the highly educated group and those having the expectation of unemployment
tend to recognize the expansion of the income gap. In addition, altruistic people andlow-income earners are likely to support redistributive policies. These findings are
obtained in both Japan and the U.S. Second, the middle-aged Japanese are more likely
13

to recognize the expansion of the gap, while redistributive policies get greater support
from older groups. In the U.S., by contrast, there is no significant difference in therecognition of the gap by age groups while the elderly tend to avoid supporting theenforcement of redistribution.
A characteristic finding in both Japan and the U.S. suggests that the highly
educated or high-income group, showing greater recognition of the expansion of theincome gap, neither view that expansion as problematic nor expect the enforcement ofredistributive policies. Moreover, the group of people regarding the expansion as aproblem does not necessarily agree with the enforcement of redistribution, because apart of them failed to recognize the widening gap itself. This is exemplified by thetendency observed in Japanese women. They are less likely to support redistribution
than Japanese men are, whereas a greater portion of them considers the expansion of
the gap as a problem than the males. The Japan-U.S. difference in their support forredistributive policies can be also attributed to the contrasting levels of recognizing
their own expanded gaps in these countries.

4. Recognition of Income Determination
The preceding section found that the Japan-U.S. difference in recognizing the
expansion of income gap affected their attitudes toward the redistributive policies.
This section will examine the possibility that their values in desirable determinants of
the income gap affect their recognition. Based on the responses to the question asking
about how people’s incomes are decided (Question 42), Figure 12 shows the share of
respondents who think income is decided by a particular factor. For both Japan andthe U.S., the proportion of those who think one’s choice or effort decides his or her
income is higher than the counterparts of any other factors: 68% in Japan and 84% in
the U.S. The share of people having the opinion that one’s luck on occasions decides
his or her income barely differs between Japan and the U.S.
These two countries, however, show clear contrasts when we make acomparison of the proportions of those who think inborn talent or academic
background decides their income. One’s academic background is thought to be a
14

determinant of income by 77% of the U.S. residents; on the other hand, the proportion
equals only 43% for Japanese. Similarly, those who think “one’s inborn talent decides
income” amounts to 60% in the U.S.; in contrast, only 29% of Japanese agree with theidea. The three most major determinants of income are, in descending order, (1)choice or effort, (2) academic background, and (3) inborn talent for the U.S.; incontrast, the counterparts for Japan are (1) choice or effort, (2) luck on occasions and(3) academic background.
When thoughts on income gap are compared between Japan and the U.S.,
values in “what should decide one’s income” show greater international differences.
Among the determinants in Figure 13, “choice and effort” collects the largest support
in both Japan and the U.S. However, the proportion of those who think that academic
background or inborn talent should decide income exceeds 50% in the U.S., whereas
each corresponding share in Japan ranges from 10 to 15 percent only. Japanese thus
have negative perception of other factors than choice or effort as determinants ofincome. The residents in the U.S., on the other hand, tend to tolerate the income gap
caused by the difference in one’s inborn talent or academic background.
Is there any age difference in their value judgments on income determination?
On each age group, Table 1 shows the proportion of those who support the factors in
the first row as desirable determinants of income. Except for the people in their 70s orover, no large difference in their value judgments on those determinants can be foundamong the U.S. age groups. The Japanese, by contrast, show large age differences intheir values. Especially, the proportion of those who think luck on occasions should
decide one’s income is greater in the age groups under 40 than the others. In addition,
the people who regard inborn talent as a desirable determinant of income occupy agreater share in younger age groups in Japan. Moreover, the larger proportions of
those recognizing the income-gap expansion, observed in the age groups from the 40s
to 60s, reflect their greater tendency to dislike the income being decided by luck on
occasions 9 .
9The inferences made by the results of this simple tabulation are qualitatively the same as thoseobtained from multiple probit analyses.

15

The disagreement between values in what should decide people’s income andthe recognition of how one’s income is decided may form their impression of thewidening gap. Such a possibility will be now examined. The recognition of an
expanded gap between income or earnings is, in Japan, more frequently observed
among those having disagreements between the desirable and recognized determinantsof income gap than the others. The disagreements are classified as follows (Table 2);(1) one’s income is decided by inborn talent, though it should not be, (2) one’s income
is decided by their academic background, although it should not be, (3) one’s income
is decided by luck on occasions, whereas it should not be, and (4) one’s income isdecided by their family environment, although it should not be.
A clear Japan-U.S. difference can be found in values and recognition
concerning people’s academic background and income. The proportion of those who
think that people’s income is decided by their academic background though it should
not be gains a majority of Japanese, 52.3%. The percentage of such group in the U.S.
is only 21.2%. Among such group, the proportion of those recognizing pastincome-gap expansion is high in Japan. The same tendency cannot, however, beobserved in the U.S. Hence, the recognition of the income gap in Japan partially stems
from their recognition of a widening gap caused by inborn talent, luck, academic
background and family environment rather than choice or effort. The percentage of
those thinking that one’s income is decided by their family environment though it
should not be, however, bears only a small difference between Japan and the U.S.

The Japan-U.S. difference in recognizing equal opportunities

The analysis above found a large Japan-U.S. difference in value judgment on
the effect of inborn talent and academic background on income. Contrary to
expectation, however, the residents in Japan and the U.S. have similar values in othersocial and economic factors concerning the income gap, as shown in Table 3. In bothcountries, for instance, approximately 20% of them agree with the opinion that society
should have a wide enough income gap for encouraging one’s willingness to work.
16

Those percentages are relatively low in the table. Similarly, no large Japan-U.S.
difference is observed concerning the proportion of those who agree with thefollowing ideas: (1) equal opportunity of becoming rich should be given by society;(2) there should be a society where everyone can gain enough income for a minimum
standard of living if he or she works diligently; (3) our society should give enoughhelp to people who are so poor and have difficulties in living. Comparing the
proportions between the two countries, Japan has higher percentages of agreementwith the first two opinions above. The percentage for the third idea is, in contrast,
greater in the U.S. than Japan.
Recognition of the income gap at present, on the other hand, shows a large
difference between Japan and the U.S. (Table 3). The most evident contrast isobserved in the proportion of those supporting the opinion that equal opportunity of
becoming rich is given by society even though one is poor at present. The percentage
amounts to 15% in Japan, whereas the figure equals 43% in the U.S. A large majorityof Japanese, in other words, believe that opportunities are not equal. Comparing
among the age groups, the share of those supporting the idea of equal opportunities ishigher for the groups of 50-plus than the younger in both Japan and the U.S. (Table 4).
A large Japan-U.S. gap can be also found in the percentage of those agreeing with theopinion that their society is giving enough help to people who are so poor and havedifficulties in living. That percentage equals 13% in Japan; the figure is 38% in the
U.S.

5. Concluding remarks
Employing the data based on identical survey questions in Japan and the U.S.,
this study empirically analyzed the cause of rising perception of the widening income
gap in Japan. The statistical indices show that the income gap has been greater in the
U.S. than in Japan. A greater percentage of Japanese, however, recognizes or expects
the widening income gap, compared to U.S. citizens. Between these countries, there is,nevertheless, no large difference in the proportion of those who regard their expanded
gap as problematic or support the enforcement of redistributive policies. The
17

difference in their recognition and expectation is attributed to their distinct value
judgments on the substance of the income gap. The Japanese, in particular, have astrongly negative perception of the expansion of the income gap caused by talent,
academic background or luck, whereas such perception seems relatively weak in the
U.S. A large portion of Japanese recognizes that one’s income is recently decided byhis or her inborn talent, academic background or luck on occasions although theygenerally dislike their income being decided by any factors other than choice or effort.
Such disagreement between the desirable and recognized determinants of income isthought to have raised the Japanese perception of the gap during recent years. Besides,
the percentage of those who believe equal opportunities for becoming rich is very low
in Japan.
The expansion of the income gap tends to be recognized by highly educatedpeople or high-income earners in both Japan and the U.S. However, these groups ofpeople are neither likely to view the income gap as problematic nor inclined to agreewith the enforcement of redistributive policies. That is, the people recognizing the
expansion of the income gap do not necessarily support redistribution. Altruistic
people, in addition, tend to have negative perception of the increase in the income gap
and support redistributive policies. Altruistic U.S. residents are also apt to recognize
the income gap expansion.
An evident difference is observed in the effect of age. In Japan, people ofmiddle age, in their forties or fifties, are likely to recognize the widening gap, while
support for redistributive policies is stronger for higher age categories. In contrast,
the portion of people recognizing the expansion of the gap does not differ by age inthe U.S; besides, those aged seventy or over are more likely to oppose theenforcement of redistributive policies.
Summarizing the possible causes of the rising perception of the gap in Japan,
the greater portion of Japanese recognize that their income has become more likely to
be decided by luck on occasions, academic career or inborn talent, although they
consider such change as undesirable at the same time. In addition, recognition of the
expanding income gap is largely affected by their countries or ages, for the18differences in those attributes cause a large distinction of their values in what should
decide one’s income.
Altogether, people are thought to recognize the gap between their incomes as
they have begun to be decided by morally undesirable factors. In other words, they
seem unlikely to react just to the rising index of income inequality including its Gini
index or variance. From the latter half of the 1990’s, the traditional seniority-oriented
wage system in Japan has begun to adopt a performance-based salary, decided by not
only their effort but also their luck or talent. The traditional system, in contrast, used
to be mainly based on the evaluation of the length of an employee’s overtime workand his or her effort. The recent change in income determination, becoming estranged
from their traditional values, is thus thought to cause the increased perception of thewidening income gap among the Japanese.
The perceived level of the income gap in Japan should be higher than the levelindicated by the statistical data, for the Japanese think that the gap has been widened
by unacceptable causes including one’s talent, luck, and academic background, rather
than the desirable ones like choice or effort. In addition, the average executive salaryin Japan has never reached the level of its counterpart in the U.S., maybe because
Japanese society has a social norm placing great emphasis on effort. The people livingin the U.S. are comparatively unlikely to perceive the gap expansion, even though it
has actually continued to expand. They tolerate the gaps caused by one’s academic
background and inborn talent; they also believe that equal opportunity of becomingrich is given by their society. It is thus inferred that such international division ofthoughts can explain the Japan-U.S. difference between their attitudes toward theincome gap in each country.

19

References

Alesina, Alberto. and Eliana La Ferrara (2005), “Preferences for Redistribution in theLand of Opportunities”, Journal of Public Economics, vol.89, 897-931.
Autor, David H., Lawrence F. Katz, and Melissa S. Kearney (2006), “The Polarizationof the U.S. Labor Market”, American Economic Review, vol.96, no.2, 189-194.
Benabou, A. and E. Ok (2001), “Social Mobility and the Demand for Redistribution”,
Quarterly Journal of Economics, vol. 116, pp. 447–487.
Katz, Laurence. F. and David. H. Autor (1999), “Changes in the Wage Structure andEarning Inequality”, in Orley Ashenfelter and David Card (eds), Handbook ofLabor Economics, vol.3A, Amsterdam: North-Holland, pp. 1463-1555.
Kimball, Miles S., Claudia R. Sahm. and Matthew D. Shapiro (2005), “Using
survey-based risk tolerance”, unpublished, Michigan University.
Lemieux, Thomas (2006), “Postsecondary Education and Increasing Wage Inequality”,
American Economic Review, vol.96, no.2, pp. 195-199.
Moriguchi, Chiaki and Emmanuel Saez (2005), “The Evolution of Income
Concentration in. Japan, 1885-2002, Evidence from Income Tax Statistics”,
mimeo.
Ohtake, Fumio (2005), Nihon no Fubyodo (Inequality in Japan) (in Japanese), Tokyo:
Nihon Keizai Shinbunsha.
Ohtake, Fumio and Jun Tomioka (2004), “Who Supports Redistribution?”, Japanese
Economic Review, vol.55, pp. 333-478.
Piketty, Thomas (1995), “Social Mobility and Redistributive Policies”, Quarterly
Journal of Economics, vol.110, pp. 551–584.
Piketty, Thomas and Emmanuel Saez (2006), “Evolution of Top Incomes: A Historicaland International Perspective”, American Economic Review, vol.96, no.2, pp.
200-205.
Ravallion, Martin. and Michael. Lokshin (2000), “Who Wants to Redistribute? The
tunnel effect in 1990 Russia”, Journal of Public Economics, vol.76, pp. 87–104.
Tomioka, Jun and Fumio Ohtake (2005), “On the perception of ‘rising economic
20

inequality’ in Japan”, Osaka Economic Papers (in Japanese), vol.54, no.4,
pp.421-436.

21

Tables & Figures

Figure 1: Trend in Economic Inequality in Japan and the U.S.
0.48
0.46
0.44

Gini Index

0.42
0.4
0.38
0.36
0.34
0.32
0.3
1967

US

70

Japan

73

76

79

82

85

88

91

94

97

2000

Year

Source: U.S. Census Bureau; Comprehensive Survey of Living Conditionsof the People , Ministry of Health, Labour and Welfare [of Japan]

Figure 2: Recognition and Expectation of the Income Gap Expansion(Japan-U.S. comparison)
(%)
75
70

72.2
68.3

67.4

65
57.8

60
55

54.4

62.0

60.3
56.6 56.9
53.8

51.4 51.4

50
42.9

45

44.8 44.5

37.7

40
35
30
Income/Earings

Japan (last 5 years)

AssetsSpending standard

Japan (next 5 years)

U.S. (last 5 years)

Gap due to family
environment

U.S. (next 5 years)

Source: Osaka University 21st Century Center of Excellence Program

22

Figure 3: Recognition of and Attitude toward the Income Gap: Japan-U.S. Comparison
(%)

80
70

74.2

70.3

59.9

56.1

60

73.8

72.6

51.7

50

45.3

40
30
20
10
0
Recognition

Expectation

Viewing the gap as
problematicJapan

Supproting
redistribution

U.S.

Figure 4: Thoughts on the Income-Gap Expansion by Income Group in Japan
(%)

82.1
77.7 76.8

80
70

72.0

80.0

75.3
69.2

76.3

74.4

72.5 72.2

65.2
58.1

60

55.7
49.1

50

45.0

40
30
Recognition

Expectation

1st Quantile

2nd Quantile

Viewing the gap as
problematic

3rd Quantile23

Supporting
redistribution

4th Quantile

Figure 5: Thoughts on the Income-Gap Expansion by Income Group in the U.S.
(%)
76.7

80
70
60

53.9

56.1

58.2 59.0

57.5

60.6

73.8

71.8

69.2

63.0 61.2
54.9
47.7

50

40.3

40

33.5

30
Recognition

Expectation

1st Quantile

Viewing the gap as
problematic

2nd Quantile

3rd Quantile

Supporting
redistribution

4th Quantile

Figure 6: Thoughts on the Income-Gap Expansion by Age Group in Japan
(%)
80
70

68.9
64.2

71.9

76.8
70.9
70.3

75.2
69.2

77.7
72.1
69.8

63.3

74.9

76.2
73.8

67.0
65.4

66.0
58.2
56.6
53.8

60

47.2 46.7
46.2

50
40
30
20
Recognition

20s

Expectation

Viewing the gap as
problematic

Supporting redistribution

30s

50s

70+

40s

24

60s

Figure 7: Thoughts on the Income-Gap Expansion by Age Groups in the U.S.
(%)

80

76.4 76.8
73.3 72.2
74.4
70.5

70
59.1
58.7
55.6
55.6
54.3
54.5

60

63.6
62.1 61.5
60.5 57.4
56.7
50.1
46.1 46.2 44.8
42.2 42.5

50
40
30
20
Recognition

20s

Expectation

30s

Viewing the gap as
problematic

40s

50s

60s

Supporting
redistribution

70+

Figure 8: Thoughts on the Widening Income Gap by Gender (Japan)
(%)
80
70

74.2
66.8

78.0
73.3 71.9

70.7

60

55.2
48.6

50
40
30
Recognition

Expectation

FemaleViewing the gap as
problematic
Male

25

Supporting
redistribution

Figure 9: Thoughts on the Widening Income Gap by Gender (U.S.)
(%)
80

75.5

71.6

70
60

54.9

57.7

58.8

61.2

46.0 44.4

50
40
30
Recognition

Expectation

Viewing the gap as
problematic

FemaleSupporting
redistribution

Male

Figure 10: Marginal Effects of Individual Attributes on their Thoughts on Income Gap(Japan)20%

Recognition
Expectation

15%

Viewing gap as problematic
Supporting redistribution

Marginal effect

10%

5%

0%

-5%

F

U UF 30 40 50 60 70 G

2

3

4

S

F HP HU EU EG IG RA AL

-10%

-15%

Bases of dummy variables: (1) Married male, (2) under 30 years of age, (3) Having no college
diploma, (4) 1st household income quartile, (5) not self-employed, (6) no experience of
unemployment, (7) no expectation of unemployment

26

Figure 11: Marginal Effects of Individual Attributes on their Thoughts on Income Gap(U.S.)

15%
10%

Marginal effect

5%
0%
-5%
-10%

F

U UF 30 40 50 60 70 G

2

3

4

S

F HP HU EU EG IG RA AL
Recognition-15%

Expectation
Viewing gap as problematic

-20%
-25%

Supporting redistribution
Bases of dummy variables: (1) Married male, (2) under 30 years of age, (3) Having no college
diploma, (4) 1st household income quartile, (5) not self-employed, (6) no experience of
unemployment, (7) no expectation of unemployment

List of Explanatory Variables and their Abbreviations in Figures 10 and 11
Abbreviation

Variable

Abbreviation

VariableF

Female4

4th household income quartileU

UnmarriedS

Self-employedUF

Unmarried female

F

Balance of financial asset (million yen)30

In one's 30s

HP

Value of Housing & properties (million yen)40

In one's 40s

HU

Have unemployed50

In one's 50s

EU

Expecting unemployment

60

In one's 60s

EG

Rate of expenditure growth in 2005 (%)

70

Of 70 years of age and overIG

Rate of income growth in 2005 (%)

G

Graduates

RA

Risk aversion (probability of rain)

2

2nd household income quartile

AL

Altruistic attitude

3

3rd household income quartile27

Figure 12: What Decides One’s Income?
(%)
90

84.2

Japan

80
70

77.4

USA

68.6
60.3

60

57.0

53.1
47.5

50

43.1
37.7

40

29.5

30
20
10
0
Choice or effort

Luck on occasions

Inborn talent

Familyenvironment

Academic
backgroundSource: Osaka University 21st Century Center of Excellence Panel Survey (2006)

Figure 13: What should Decide One’s Income?
(%)
100
86.6

90
80

75.7

Japan

USA

70

64.3

60

51.2

50
40

28.9

27.9

30
20

11.5

15.0
7.7

10

10.4

0
Choice or effort

Luck on occasions

Inborn talent

Familyenvironment

Academic
backgroundSource: Osaka University 21st Century Center of Excellence Panel Survey (2006)28

Table 1: Desirable determinants of income: Japan-U.S. comparison by age (%)
Luck onoccasions

Choice or effort

Inborn talent

Familyenvironment

Academic
background

Age

Japan

U.S.

Japan

U.S.

Japan

U.S.

Japan

U.S.

Japan

U.S.

<30

79.4

87.1

17.1

26.1

23.5

50.6

7.1

28.1

12.1

65.1

30s

83.7

88.5

15.3

25.6

20.4

47.1

11.3

28.4

11.0

66.3

40s

79.3

87.7

10.2

29.9

15.7

49.0

6.8

30.9

12.0

63.6

50s

75.1

89.6

9.3

26.4

12.0

54.0

6.6

26.1

8.8

63.1

60s

70.5

90.3

10.4

29.7

11.7

51.1

7.5

26.8

10.5

65.6

≥70

65.9

89.6

16.5

35.0

10.6

65.8

11.8

37.9

8.2

74.8

Average

76.6

88.8

11.6

28.6

15.2

52.8

7.8

29.5

10.5

66.1

Table 2: Values-Recognition Gap concerning Income Determination andPerception of Income Gap Expansion
Share among those having a particular disagreement between
their desirable and recognized determinants of income
Share in the entire
sample of eachcountry (%)

Recognizing the
expansion ofincome gap (%)

Expecting the
expansion ofincome gap (%)

Japan

U.S.

Japan

U.S.

Japan

U.S.

Japan

U.S.

Income is decided byinborn talent though it
should not be

23.9

19.9

73.0

59.9

75.1

61.2

72.8

74.0

Income is decided byacademic backgroundthough it should not be

52.3

21.2

75.1

55.2

77.3

58.1

77.1

75.5

Income is decided byluck on occasions though
it should not be

37.9

29.0

74.9

61.1

79.4

62.2

74.2

77.5

Income is decided by
one’s family environment
though it should not be

31.8

32.2

75.8

60.0

80.2

62.8

76.2

79.5

Share in the entire
sample of each country

-

-

70.4

56.3

74.2

59.8

72.7

73.9

Disagreement between
desirable and recognizeddeterminants of income

29

Viewing the gap as
problematic (%)

Table 3: Values and Recognition concerning the Income Gap
ValuesJapan (%)

U.S. (%)

The society should have a wide enough income gap.

19.7

20.6

Equal opportunity of becoming rich should be given by
the society.

69.7

63.7

In the society, everyone should be able to gain enoughincome for a minimum standard of living

86.0

81.8

Our society should give enough help to people having
difficulties in living

61.9

63.6

Japan (%)

U.S. (%)

28.8

25.5

Equal opportunity of becoming rich is given by thesociety.

15.3

43.0

There are people who cannot gain enough income for aminimum standard of living.

57.4

66.9

Our society is giving enough help to people having
difficulties in living.

12.9

37.6

Recognition
Willingness to work is decided by whether or not thesociety has a wide enough income gap.

Table 4: Proportion of Those Who Think that Equal Opportunity for
Becoming Rich is Given by the Society (%)
Age

20s

30s

40s

50s

60s

70s+

Japan

9.9

13.7

11.4

16.8

20.2

23.3

U.S.

39.7

35.9

42.9

45.4

50.8

50.7

30

Appendix 1: Questions in Osaka University 21st Century Center of Excellence Panel
Survey27.

Suppose that you found a well-known charity that gave financial help to people who
typically had about one-fifth of your family income per person. Up to how much of yourown family income per month would you be willing to give the charity if you knew themoney would go directly to benefit these people? (X ONE Box)

28.

1

Up to 2 % of your family income per month2

Up to 5 % of your family income per month3

Up to 10 % of your family income per month4

Up to 20 % of your family income per month5

No help at all

Suppose that you found a well-known charity that gave financial help to people who
typically had about one-fifth of your family income per person. Up to how much of yourown family income per month would you be willing to give the charity if you knew thecharity would give twice the amount of your donation directly to benefit these people?
(X ONE Box)1Up to 2 % of your family income per month2

Up to 5 % of your family income per month3

Up to 10 % of your family income per month4

Up to 20 % of your family income per month5

No help at all

31

42.

The following statements are ideas on how people’s income and standard of living are

I Think So To
Some Extent

Neither

I Don’t Think
So That Much

I Don’t ThinkSo

I Think So

decided in the US. What is your opinion of these ideas? (X ONE Box For Each Row)

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

Whether or not one can gain an income or a status that
one wishes for is decided by one’s choice or effort ……........... 1 Whether or not one can gain an income or a status that
one wishes for is decided by one’s luck on occasions ............... 1 Whether or not one can gain an income or a status that
one wishes for is decided by one’s inborn talent ....................... 1 Whether or not one can gain an income or a status that one wishes
for is decided by one’s family environment that one grew up in.......................... 1 Whether or not one can gain an income or a status that one
wishes for is decided by one’s academic background ................ 1 One’s willingness to work is decided by whether or not it
is a society where a wide enough income gap exists ................. 1 Even though one is poor at present, equal opportunity of
becoming rich is given by the society ......................................... 1 Even if one works diligently, there are people who cannot
gain enough income for a minimum standard of living .............. 1 
Our society is giving enough help to people who are sopoor and have difficulties in living ............................................. 1 

32

43.

The following ideas are about how people’s income and standard of living should be

Generally
DisagreeDisagree

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

2

3

4

5

gain enough income for a minimum standard of living .............. 1  2 

3

4

5

3

4

5

Neither2

AgreeGenerallyAgreedecided. What is your opinion on these ideas? (X ONE Box For EACH Row)

Whether or not one can gain an income or a status that one wishes forshould be decided by one’s choice or effort ............................... 1 Whether or not one can gain an income or a status that one wishes forshould be decided by one’s luck on occasions ............................ 1 Whether or not one can gain an income or a status that one wishes forshould be decided by one’s inborn talent .................................... 1 Whether or not one can gain an income or a status that one wishes forshould be decided by one’s family environment that they grew up in.......................... 1 Whether or not one can gain an income or a status that one wishes forshould be decided by one’s academic background ..................... 1 One’s willingness to work should be decided by whether or not it is asociety where a wide enough income gap exists ......................... 1 Even though one is poor at present, equal opportunity of becoming richshould be given by the society .................................................... 1 
If one works diligently, there should be a society where everyone canOur society should give enough help to people who are so poor andhave difficulties in living ............................................................ 1 

33

2

44.

How do you think the following gaps in the US have changed in last 5 years? (X ONE

Didn’tChangeReducedSomewhat

Reduced

2

3

4

5

2

3

4

5

.......................... 1 

2

3

4

5

Gap between spending standard ..................................................... 1 

2

3

4

5

Expanded

ExpandedSomewhat

Box For EACH Row)

Gap between income or earnings .................................................. 1 
Gap between assets such as savings, stocks, land and housing that
one holds ..................................................................................... 1 Income gap due to difference between families which one grew up in

45.

How do you think the following gaps in the US will change in next 5 years? (X ONE

Will Not
ChangeReduceSomewhat

Reduce

2

3

4

5

2

3

4

5

.......................... 1 

2

3

4

5

Gap between spending standard .................................................... 1 

2

3

4

5

ExpandExpandSomewhat

Box For EACH Row)

Gap between income or earnings .................................................. 1 
Gap between sums of assets such as savings, stocks, land andhousing that one holds ................................................................. 1 Income gap due to difference between families which one grows up in

34

46.

How much of a problem do you think the current expansion of the income gap is? (XONE Box)1

It’s a big problem

2

It’s somewhat of a problem

3

47.

Neither4

It’s not much of a problem

5

It’s not a problem at all6I don’t know

What is your opinion if the government alters taxation system and social security policy

Neither

Generally
DisagreeDisagreeredistribution of income from the rich to the poor ...................... 1 

2

3

4

5

Increase supply of public housing for people of low income ....... 1 

2

3

4

5

2

3

4

5

2

3

4

5

benefit level ................................................................................. 1 

2

3

4

5

Decrease the pension benefits paid to people of high income ...... 1 

2

3

4

5

Tighten the standard for providing welfare benefits ..................... 1 

2

3

4

5

Agree

Generally
Agree

indicated below? (X ONE Box For EACH Row)

Using taxation system and social security policy, to enforce

To maintain the pension system, decrease pension benefit level.......................... 1 
To maintain pension benefit level, increase the amount which thepension is covered by insurance .................................................. 1 Raise the age which pension payment starts and keep the pension

35

Appendix 2: Estimation of the Constant Relative Risk Aversion (CRRA) Parameter

Each individual coefficient of constant relative risk aversion was estimated through thefollowing procedure, referring to the method in Kimball et al. (2005).
First, the measurement of risk preference is based on the data collected through a series ofquestions below.
8.

Considering the following two ways of receiving your monthly income, which ispreferable to you? Assume that the job assignment is the same under these situations. If
you are a dependent (e.g., student, housewife, etc.), answer this question taking yourliving expense as your monthly income. (X ONE Box)
2  Your monthly income is guaranteed to1  Your monthly income has a 50% chanceof doubling, but also has a 50% chance oforincrease by 5% → (Answer Qu. 8b)

decreasing by 30% → (Answer Qu. 8a)8a.

Of the following two jobs, which would you

8b. Of the following two jobs, which would you

prefer? (X ONE Box)prefer? (X ONE Box)

1  A job that has a 50% chance of the monthly

1  A job that has a 50% chance of the monthly

income doubling, but also a 50% chance ofincome doubling, but also a 50% chance ofthe monthly income being cut in half

the monthly income decreasing by 10%

2  A job with which your monthly income is

2  A job with which your monthly income isguaranteed to increase by 5%

guaranteed to increase by 5%

From the above the combination of choices between the variable wages and the constantones, the degree of risk tolerance, defined as the inverse of CRRA coefficient, can beclassified into the following four categories:(1) the variable wages in the question 8 and 8a,(2) the variable wage in the question 8 while the stable one in 8a,(3) the constant wage in the question 8 while the variable one in 8b,(4) the constant wages in the question 8 and 8b.

36

That is, the degree of risk tolerance becomes weaker for categories of larger numbers. The
category (1), for instance, shows the highest risk tolerance among the four.
In the next step, the range of risk tolerance for each category will be set, assuming the
CRRA utility function. For example, the coefficient of risk aversion parameter to realize theindifference between the two choices in the question 8b will be identified as follows. In thequestion 8b, the CRRA coefficient, γ, has to satisfy the following equation when the expectedutility is indifferent:

0.5(1 − 0.1)1−γ (1 + 0.05)1−γ
21−γ
.
+ 0.5
=
1− γ
1−γ
1−γ

The estimate of γ equals 5.29, which becomes the lower bound for the respondents in category(4) above. In other words, only the individuals having the CRRA parameter more than orequal to 5.29 should have proceeded from the question 8 to 8b and then could have beenclassified in (4). The upper bound should be, on the one hand, infinite10. Applying the same
thought to the question 8 and 8a similarly, the upper and lower bounds of risk tolerance
parameter, or the inverse of CRRA coefficient, of each category can be derived as shown in
the table below.
Table A1: The Lower and Upper bounds of Risk Tolerance Parameter (with theircorresponding values of CRRA coefficients) for the Four Categories
Bounds (Tolerance)

Bounds (CRRA)

Categories

Lower

Upper

Lower

Upper

(1)

1.26

∞

0

0.80

(2)

0.53

1.26

0.80

1.90

(3)

0.19

0.53

1.90

5.29

(4)

0.00

0.19

5.29

∞

Third, employing the obtained pairs of upper and lower bounds, the expected values of risk
tolerance coefficient will be derived through the maximum likelihood estimation. Let θ denotethe parameter of risk tolerance and assume that it follows the log-normal distribution, or

10

A finite upper bound of the CRRA parameter could not be derived because none of the questions
presented a wage schedule being variable and still safer than the one in the question 8b.

37x ≡ ln θ ~ N ( μ , σ ) ,where μ and σ denote the mean and standard deviation of the normal distribution respectively.
Besides, suppose θ j and θ j signify its lower and upper bounds for the category j (= 1, 2, 3,4) respectively. Those bounds then take the estimates in Table A1. The probability for θ ofindividual i, xi ≡ ln θ i , to be in jth class can be expressed as:⎛ ln θ j − μ ⎞⎛ ln θ j − μ ⎞⎟ − Φ⎜⎟,
P(c = j ) = P(ln θ j < xi < ln θ j ) = Φ⎜
⎜
⎟
⎜
⎟
σ
σ
⎝
⎠
⎝
⎠

The mark Φ, in addition, denotes the cumulative distribution function of the normal
distribution. The logarithm of the above probability can constitute a log-likelihood function
defined as:
L (μ , σ | c ) = ∑ ∑ 1 [c i = j ] ln P(c = j )i∈I j∈J

Let 1[ci = j] signifies the variable to take one for the inclusion of individual i in class j;otherwise, it equals zero. In addition, suppose that letter I and J indicate the total number of
respondents and classes respectively. Employing the parameter μ and σ through the maximum
likelihood estimation with the log-likelihood function, each expected value of θ in j can beobtained by the following equation (Kimball et al., 2005).

(

E θ i | ln θ j < xi < ln θ j)⎛ − (y − μ − σ 2 )2 ⎞
⎜
⎟ dy
exp
2
⎜
⎟
2 ⎞ ∫ln θ j
⎛
2
σ
2π σ
σ
⎝
⎠
⎟
= exp⎜⎜ μ +
⎟
2 ⎞
2
⎛
ln
θ
j
− ( y − μ)1⎝⎠∫ln θ j 2π σ exp⎜⎜⎝ 2σ 2 ⎟⎟⎠ dyln θ j1

Table A2: The Estimates of Risk Tolerance Parameter (with their corresponding CRRA
values) for the Four Categories
Japan

United States

Categories# of obs.

Tolerance

CRRA# of obs.

Tolerance

CRRA

(1)

144

2.85

0.35

72

2.68

0.37

(2)

334

0.80

1.26

157

0.79

1.26

(3)

632

0.32

3.15

371

0.32

3.16

(4)

2,005

0.07

14.65

1179

0.07

14.65

38

Appendix 3: Descriptive Statistics
Japan

U.S.

Japan-U.S.
mean
Difference(JPN-USA)

Sample
size

Mean

Std.
dev.

Sample
size

Mean

Std.
dev.

Recognition of gap

3653

0.703

0.457

3025

0.561

0.496

0.143

***

Expectation of gap

3660

0.742

0.438

3010

0.599

0.490

0.143

***

Support for redistribution

3652

0.517

0.500

3017

0.453

0.498

0.064

***

Viewing gap as problematic

3537

0.726

0.446

2973

0.738

0.440

-0.012

Ideas on how people’s income and standard of living are
decidedChoice/Effort

3737

0.691

0.462

3062

0.858

0.350

-0.166***

Luck on occasions

3736

0.478

0.500

3059

0.541

0.498

-0.063***

Inborn talent

3728

0.297

0.457

3050

0.617

0.486

-0.320***

Family environment

3728

0.381

0.486

3038

0.586

0.493

-0.205***

Academic background

3727

0.435

0.496

3051

0.792

0.406

-0.357***

Income gap

3712

0.292

0.455

3040

0.262

0.440

0.030

***

Equal opportunity

3732

0.154

0.361

3045

0.440

0.496

-0.286***

Minimum income

3733

0.579

0.494

3056

0.683

0.466

-0.104***

Enough help

3731

0.130

0.336

3062

0.383

0.486

-0.253***

Ideas on how people’s income and standard of living should be decided
Choice/Effort

3721

0.766

0.424

3051

0.885

0.319

-0.120***

Luck on occasions

3727

0.116

0.320

3044

0.286

0.452

-0.170***Inborn talent

3712

0.152

0.359

3046

0.524

0.500

-0.372***

Family environment

3725

0.078

0.268

3043

0.296

0.457

-0.219***

Academic background

3722

0.105

0.307

3038

0.660

0.474

-0.555***

Income gap

3706

0.200

0.400

3025

0.213

0.409

-0.013Equal opportunity

3714

0.706

0.456

3037

0.655

0.476

0.052

***

Minimum income

3726

0.869

0.338

3051

0.836

0.370

0.033

***

Enough help

3718

0.627

0.484

3045

0.652

0.476

-0.025**

Female

3763

0.529

0.499

3093

0.563

0.496

-0.035***

Unmarried

3752

0.137

0.344

3081

0.601

0.490

-0.464***

Unmarried Female

3752

0.065

0.246

3055

0.333

0.471

-0.268***Not employed male

3763

0.067

0.250

3120

0.124

0.330

-0.057***

Employed female

3763

0.333

0.471

3120

0.314

0.464

0.019

*

Not employed female

3763

0.183

0.386

3120

0.189

0.391

-0.006(Continued on next page)39

(Continued)
Age groups
30s

3763

0.166

0.372

2986

0.161

0.368

0.004

40s

3763

0.216

0.411

2986

0.199

0.400

0.016

50s

3763

0.271

0.444

2986

0.213

0.409

0.058

***

60s

3763

0.234

0.424

2986

0.139

0.346

0.095

***

70+

3763

0.024

0.152

2986

0.149

0.356

-0.125***

Graduates

3632

0.211

0.408

3092

0.353

0.478

-0.143***

2nd quartile

3102

0.390

0.488

2870

0.176

0.381

0.214

***

3rd quartile

3102

0.131

0.337

2870

0.239

0.427

-0.108***

4th quartile

3102

0.184

0.388

2870

0.179

0.384

0.005

Self-employed

3686

0.095

0.294

2741

0.063

0.243

0.033

***

Financial assets(in million yen)
Housing and properties(in million yen)2830

14.44425.8502767

28.97666.023-14.531***3131

22.88732.1242942

25.78336.574-2.896***

Experience of unemployment

3700

0.187

0.390

3034

0.228

0.420

-0.041***

Expecting unemployment

3627

0.271

0.444

3025

0.292

0.455

-0.021*

Rate of consumption growth
(%)

3386

1.414

4.288

2878

3.003

3.919

-1.588***Rate of income growth (%)

3380-0.619

3.971

2880

1.625

3.726

-2.245***

Risk-aversion index
1- chance of rain (%) / 100

3690

0.501

0.202

2936

0.348

0.298

0.152

***

CRRA coefficient

3115

10.217

5.992

1779

10.4965.861-0.278

Altruism

3633

0.614

0.487

3047

0.781

0.414

0.168

Household income quartile

Note: * significant at 10%; ** significant at 5%; *** significant at 1%

40

***

Appendix 4: Estimation of the Probit Models to Explain the Recognition and Value
Judgments concerning the Gap and the Support for Redistributive Policies
A.

Empirical results for Japan (marginal effects (%))

Dependent variables

Recognizing
the gap

Expectingthe gap

Viewing the
gap asproblematic

Supporting
redistribution

(1)

(2)

(3)

(4)

Female-0.036*-0.045**0.036*-0.046*

Unmarried-0.0210.000-0.0280.033

Unmarried female

0.034

0.052

0.039

0.098

Age groups
30s

0.004

0.041

-0.0320.001

40s

0.071*

0.106***

0.029

0.040

50s

0.091**

0.099***

0.040

0.124**

60s

0.060

0.070*

0.009

0.155***

70+

0.045

-0.0230.054

0.164**

0.118***

0.081***-0.0000.046*

2nd quartile

0.030

0.037*-0.025

0.018

3rd quartile

0.066**

0.090***-0.068*-0.018

4th quartile

0.055*

0.059**-0.047-0.091**

Self-employed-0.005-0.0130.049*-0.007

Financial assets

0.001*

0.0003-0.001***-0.001

Housing and properties-0.0002-0.001*-0.0001-0.0005

Experience of unemployment-0.016-0.028-0.0140.010

Expectation of unemployment

0.056***

0.030

0.056***

0.030

Rate of consumption growth (%)

0.002

0.004*

0.002

0.002

Rate of income growth (%)-0.004-0.005**-0.004-0.003

Risk-aversion index:
1- chance of rain (%) / 100-0.0260.034-0.001

0.055

Altruistic (willing to donate)

0.017

0.008

0.047**

0.051**

Observations

2284

2280

2214

2280

Psudo R2

0.03

0.03

0.02

0.02

-1279.52-1181.95-1235.26-1536.81

Graduates
Household income quartile

Log likelihood

Note: * significant at 10%; ** significant at 5%; *** significant at 1%

41

B.

Empirical results for the U.S. (marginal effects (%))

Dependent variables

Recognizing
the gap

Expectingthe gap

Viewing the
gap asproblematic

Supporting
redistribution

(1)

(2)

(3)

(4)

Female-0.075**-0.056

0.068**

0.009

Unmarried-0.090**-0.045-0.015

0.014

Unmarried female

0.109**

0.055-0.007-0.035

Age groups
30s-0.021

0.018

0.012

-0.02340s-0.010

0.010

0.007

-0.029

50s

0.013

0.002

0.053

0.019

60s

0.003

-0.0110.048-0.04970+-0.042-0.085*-0.041-0.124***

Graduates

0.106***

0.050**

0.024

0.000

2nd quartile-0.045-0.022-0.027-0.101***

3rd quartile-0.045-0.023-0.051*-0.148***

4th quartile-0.063-0.039-0.077**-0.211***

Self-employed-0.026-0.028-0.020-0.067

Financial assets

0.0001-0.0001

0.00002-0.00004

Housing and properties

0.00030.0001-0.0004-0.001*

Experience of unemployment

0.013-0.001

0.013

0.049*

Expectation of unemployment

0.060**

0.056**

0.081***

0.023

Rate of consumption growth (%)

0.001

0.006**

0.012***

0.009***

Rate of income growth (%)

0.006*

0.003-0.0030.002

Risk-aversion index:
1- chance of rain (%) / 100-0.009

0.006

0.049

0.089**

Altruistic (willing to donate)0.055**

0.079***

0.114***

0.064**

Observations

2014

2010

1976

2013

Psudo R2

0.02

0.01

0.04

0.04

-1352.08-1326.87-1072.03-1333.51

Household income quartile

Log likelihood

Note: * significant at 10%; ** significant at 5%; *** significant at 1%42